Sunday, November 15, 2009

An often neglected feature of South Africa's economy is its unique taxpayer-to-voter ratio.

The country now has 21.6 million registered voters and only around 7 million registered taxpayers, giving a ratio of 3:1.

In the United Kingdom, there are 44 million voters and 29.5 million taxpayers, giving a typical "Western" ratio of about 1.5:1.

South Africa is dangerously close what I call a voter-looter scenario, where voters vote themselves an increasing share of taxpayers' wealth. As it stands, there is a New Apartheid in South Africa - that dividing taxpayers from non-taxpayers.

South Africa's statistics are also skewed by the racial demographics of its taxpayers. Half of all taxpayers are white, and so in the 15 years of full democracy, only around 10% -at most - of the previously non-taxpaying population has been brought into the taxpaying fold.

This a disaster for South Africa for a variety of reasons. The tax threshold currently stands at around R4,000 per month (about US$500), but the exact monthly tax rate for a wage-earner can be calculated here.

There are a lot of people earning less than this, of course, possibly numbering in the millions. Many of them illegal immigrants. If just R10 per month could be extracted from this income group, this would have a significant effect on the monthly tax-take.

Now, before I am accused of being a social democrat or someone in favour of a high tax, high services regime, let it be known that I an unequivocally not.

Rather than arguing for a higher rate of tax, I am arguing for a wider taxpayer base in South Africa.

The sociological value of taxpaying cannot be overemphasised. The sense of ownership that taxpaying confers is coupled with an increase in personal responsibility. Citizens have more of a right to gripe about poor services if they know that it is they themselves, rather than anonymous others, who are paying for them.

The biggest obstacle to all this, of course, is collection. One of the legacies of Apartheid is the culture of non-compliance and non-payment that developed amongst the majority population: the "give me" attitude that was fostered by the Homelands system, which were heavily subsidised by the South African taxpayer.

As a result, rather than demand services as taxpayers, those recipients of current government handouts have chosen violence and destruction, often euphemistically known as "strikes", to achieve their goals. Their philosophy is that by causing damage to property, the state will cut their losses and give into their demands for plain economic reasons. This is extortion, at best, or terrorism, at worst.

South Africans need to be taught that the State is not something run by other people, but by themselves. And the way you run the state is not by voting for it, or extorting it, but by paying for it.

Collection is not only hindered by the nonpaying culture, but by the cost of collection when much of the "employed" workforce are informal workers. When there is no paper trail, they cannot be taxed.

Collection is made slightly less complicated by a thing called UIF. A type of social insurance, UIF is paid currently by employers at a rate of 1%. Double it, and let the employees match that contribution.

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Opinion(s):

I think the most effective way of taxing ALL people, is by raising the VAT on the sale of goods. I say, push the VAT up to 20 %, and then do away with taxation altogether - far less paperwork, easier, more clinical, more effective....but a few accountants might lose their jobs.

John -I would normally advocate taxing consumption rather than income too, but how many of the masses pay for VAT-registered goods? food, clothes, junk from China, all off the back of a lorry. Everything else smuggled!

Currently the M3 money supply grows by about 20% per year. This is about 320 billion a year. The main beneficiary of this money is the SA banking system.

The fractional reserve banking system could be changed into 100% banking and the increase of the money supply could be handed over to the Treasury or Parliament. They could maintain current inflation rates and provide for about 50% of government expenses. This could also lead to a MAJOR reduction in taxation.